Ethereum Crash Drives Growth of MakerDAO and DAI

MakerDAO, a crypto collateral platform, has revealed that
its blockchain network and stablecoin have directly benefited from
Ethereum’s extended price crash, which has been ongoing for the past
several months and shows little sign of letting up.

Like most stablecoins, MakerDAO’s DAI offers
crypto holders a reliably-priced investment in the face of this sort of
market volatility. Accordingly, MakerDAO was able to make the most of
the Ethereum crash…but can MakerDAO replicate that success in the
future?

How the Crash Helped

Over the course of 2018, the price of Ethereum rapidly
declined, falling from roughly $1400 to $100 in less than twelve
months. After a few brief recoveries, the coin suffered a steady decline
beginning in May. Ethereum’s bad luck continued in the fall, and MakerDAO indicates that the events of November were particularly beneficial to its own efforts.

During November, MakerDAO saw a surge
in DAI generation, address creation, and overall network activity, all
of which correlated with Ethereum’s price drop. By mid-November, 1% of
the total ETH supply was locked up as collateral on MakerDAO.

The trend persisted: just two months
later, 1.5% of the ETH supply is locked up as collateral, indicating
that MakerDAO may continue to grow for quite some time―a major triumph
for a relatively minor platform.

The Appeal of MakerDAO

This raises the question of why some investors flocked to MakerDAO―after all, other stablecoins such as Tether provide similar protection against volatility. The most probable answer is that MakerDAO is unique in one important way: DAI tokens are backed by cryptocurrency, not by fiat currency.

Whereas most stablecoins are backed by a
central reserve of U.S. dollars, DAI tokens are backed by each
investor’s own crypto holdings and generated by the investor. This
approach gives investors a significant amount of control, because they
do not have to sell their original tokens in order to gain more liquid
(and more stable) assets.

Essentially, investors can simply lock
up their ETH tokens on MakerDAO and redeem them as needed, while
MakerDAO will automatically sell off their ETH tokens under set
conditions. This approach is highly experimental, but MakerDAO seems to
have proven its appeal―largely thanks to Ethereum’s own troubles.

Is MakerDAO On a Roll?

Even though MakerDAO owes many of its
recent accomplishments to Ethereum’s market problems, at least some of
its success was achieved by improvements in design. MakerDAO’s sudden
November growth is undoubtedly partly due to its new easy-to-use interface, which was introduced at the end of October. This would surely have attracted users regardless of the state of the market.

Furthermore, Ethereum was (and still
is) the only token supported by MakerDAO, which means that the platform
has been solely concentrating on attracting Ethereum users. That said, support for other cryptocurrencies
will soon be added. Whether MakerDAO’s initial success can be
replicated with other coins remains to be seen, but there is good reason
to be optimistic.

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